Looking forward to your retirement? Of course you are, after all, retirement is meant to be a time when you can finally relax and enjoy the fruits of your labour. Ideally, you will have been saving towards your retirement in order to accommodate your plans to sit by the seaside or travel the world. But if you’re still figuring out your retirement plans and haven’t the faintest idea of how much you’ll even need, then stick around.
Contents
To help you gauge how much money should be in the pot so that you can then move onto figuring out your savings strategy, we’ve laid out the easiest way for you to experiment with on your own. This way, you can get an idea of your retirement target before you chat with a financial advisor.
What Does Your Retirement Season Look Like?
To determine how much you need to save, you first need to decide what your retirement goals are. Essentially, you need to think long and hard about what you want your retirement years to look like and what kind of eventuality you want to plan for. The answers largely depend on your expectations around lifestyle, expenses, and other factors.
For example, you may want to sell your family home in favour of something smaller so that you can lock up and go, leaving you free to spend a few years travelling and visiting family and friends. Thereafter, you may decide to sell again and move into a comfortable senior community village with elder care so that you can settle into a quiet and cared-for life in your twinkling senior years.
Or maybe you want to move to a small coastal town, close to your doctor because you have specific medical needs. This way, you can keep your costs low, and enjoy a quiet, sedentary life, fishing and tending to your health.
Then again, you may want to up sticks, selling your house so you can wipe out any debts and invest in a luxury camper van so that you can explore South Africa. You may plan to spend very little during this time so that you can leave your modest savings to amass until you have more for your elderly requirements.
These are the kinds of things you need to consider before you can attempt to work out how much you need.
Time To Calculate Your Retirement Target
Did you know that the current average South African salary comes to around R22 500 per month? So, if you want to continue living off this amount for the rest of your life, you will need to have R4.5 million saved up by the time you retire at the age of 65.
If you’re wondering how we reached this figure, and in deed, how you should go about setting a target, then consider this approach used by financial planners.
Simply, to get a good estimate of what you’ll need, take your current salary and multiply this by 200. Let’s say you currently earn R30000 a month. If you multiply this by 200, you arrive at 6000000. This means that by the time you retire, you will need to have saved R6 million for your retirement.
That’s just a basic example and it doesn’t take into account your actual financial circ*mstances, such as what kind of debts you have when you reach retirement. You may still have a home loan that you’re paying off, vehicle loans, or a medical condition that requires a comprehensive health plan to cover doctor visits and medication. In this case, you may need to multiply your current salary by 300. This is known as the Rule of 300, and similarly to the approach of multiplying your salary by 200, you use 300 in order to calculate an estimate of how much you may need to have saved to keep living the lifestyle you currently lead when you’re retired.
Whether you use 200 or 300, it’s worth noting that this rule doesn’t consider inflation.
Saving for retirement has the potential to provide financial security and stability during your golden years. It can also provide you with an investment opportunity, whereby you can invest your retirement savings to possibly earn higher returns and grow over time. Importantly, retirement savings plans, such as pension funds and retirement annuities, offer tax benefits that can help you save more money.
In South Africa, retirement planning is crucial and needs to be personalised to fit each person’s unique financial situation, aspirations, and goals. Working with a financial planner who understands the intricacies of the South African retirement landscape can make a big difference in ensuring a secure retirement. A financial planner can provide expert insights on navigating pension funds, provident funds, tax implications, and investment choices to craft a tailored retirement plan.
Feeling informed?
We hope that this information helps you plan more intentionally for your retirement. Keep an eye out for other AA Inform articles detailing how to calculate your monthly retirement savings instalments and including tips on how to save for this stage of life.
Don’t forget that AA Inform is home to a range of useful tools and resources, including our access to free property valuation reports, multiple car and home insurance quotes through the AA Insurance Supermarket, and much more.
